The commercial property and casualty (P&C) market is driven by two powerful, albeit conflicting, forces: large catastrophic losses and excess capital. As a substantial part of real estate development is happening in areas exposed to floods, wildfires, severe storms, hurricanes and earthquakes, insurance companies are rethinking how to deploy their capital to manage aggregation in catastrophe exposed areas.
USI Insurance Services, a global insurance brokerage and consulting firm, recently released its 2019 Commercial Property & Casualty Market Outlook, which provides insight into the current dynamics of the property and casualty insurance market, as well as a deeper dive into covered sectors that include commercial real estate and construction, transportation, manufacturing/distribution, environmental, and aviation.
The report found a stable P&C industry in 2018, despite it having experienced five of the 15 costliest global catastrophes in the past two years, coupled with multiple large wildfires and other major loss events, which collectively caused in excess of $125 billion in total insured damages.
The P&C industry remains well capitalized, and its surplus now stands at $760 billion. Consequently, the industry has resisted significant and sustained market-wide rate increases, even as insured property losses from U.S. catastrophes alone went from $14.3 billion for 2.4 million claims from 33 catastrophes in 2010 to $101.9 billion for 5.2 million claims from 46 catastrophes in 2017, according to Property Claims Services and the U.S. Bureau of Economic Analysis.
It remains to be seen whether such restraint is sustainable if catastrophic events continue to increase and wreak havoc. USI says while most insureds should expect a flat to plus-5% rate change, but cautions that current rate trends will be difficult to maintain if the frequency and severity of catastrophes don’t abate.
The report notes specifically that pricing challenges are likely to persist in specific coverage lines such as property-exposed accounts in wind-prone areas, habitational risks, and large commercial trucking fleets.
Carriers, says USI, are also more likely to ask for moderate-to-high rate increases for many insureds in the public company directors’ and officers’ space, employment practices liability and medical malpractice for healthcare providers in certain classes.
Within the commercial real estate sector, multifamily properties could have the hardest time finding willing insurers. Beyond the natural catastrophe losses in 2017 and 2018, multifamily portfolios are producing fire and water damage losses, causing some carriers to either exit this risk class entirely, or increase rates and deductibles even for low-loss level insureds. With overall segment capacity shrinking, insureds with exposures to natural catastrophe and below average loss history can expect significant rate increases.
This could be especially true for frame construction, due to numerous large fire losses in recent years.
Despite the frequency of catastrophic events, insurers have so far resisted steady and high rate increases. Image: USI
The prospects are a bit brighter for nonresidential commercial properties, whose owners, developers, and managers have a distinct advantage, says USI: Quality risks remain the focus of carrier capacity offerings. Nevertheless, portfolios exposed to natural catastrophe will require a disciplined approach to achieve an optimal outcome in the marketplace.
USI joins other market observers in its expectation that spending on commercial construction will rise in 2019. Total construction spending may produce a 4% increase in insurance premiums in 2019, compared to 2018, while rates remain mostly flat in certain jurisdictions.
For larger construction projects, safety, specialization, timeliness, and staying within budget remain the biggest risks. “With good risk management and the use of Controlled Insurance Programs (CIPs), insureds can avoid disruptions, reduce loss costs, and meet expectations of all parties who have an insurable risk,” USI’s states.
Its report found in commercial construction a greater emphasis on jobsite safety to reduce claims per man-hour. The widespread application of BIM is fostering open collaboration and new ideas that are helping to mitigate risk, too.
USI also comments on the renewed interest in modular and prefabricated construction, which brings with it benefits of quality control and worker safety. However, those methods also raise insurance-related concerns, such as how a general liability insurance policy would respond to a potential claim, and how employees should be categories within their workers compensation programs.
Related Stories
Retail Centers | Nov 7, 2023
Omnichannel experiences, mixed-use development among top retail design trends for 2023-2024
Retailer survival continues to hinge on retail design trends like blending online and in-person shopping and mixing retail with other building types, such as offices and residential.
Healthcare Facilities | Nov 3, 2023
The University of Chicago Medicine is building its city’s first freestanding cancer center with inpatient and outpatient services
The University of Chicago Medicine (UChicago Medicine) is building Chicago’s first freestanding cancer center with inpatient and outpatient services. Aiming to bridge longstanding health disparities on Chicago’s South Side, the $815 million project will consolidate care and about 200 team members currently spread across at least five buildings. The new facility, which broke ground in September, is expected to open to patients in spring 2027.
Office Buildings | Nov 2, 2023
Amazon’s second headquarters completes its first buildings: a pair of 22-story towers
Amazon has completed construction of the first two buildings of its second headquarters, located in Arlington, Va. The all-electric structures, featuring low carbon concrete and mass timber, help further the company’s commitment to achieving net zero carbon emissions by 2040 and 100% renewable energy consumption by 2030. Designed by ZGF Architects, the two 22-story buildings are on track to become the largest LEED v4 Platinum buildings in the U.S.
Sustainability | Nov 1, 2023
Researchers create building air leakage detection system using a camera in real time
Researchers at the U.S. Department of Energy’s Oak Ridge National Laboratory have developed a system that uses a camera to detect air leakage from buildings in real time.
Adaptive Reuse | Nov 1, 2023
Biden Administration reveals plan to spur more office-to-residential conversions
The Biden Administration recently announced plans to encourage more office buildings to be converted to residential use. The plan includes using federal money to lend to developers for conversion projects and selling government property that is suitable for conversions.
Sustainability | Nov 1, 2023
Tool identifies financial incentives for decarbonizing heavy industry, transportation projects
Rocky Mountain Institute (RMI) has released a tool to identify financial incentives to help developers, industrial companies, and investors find financial incentives for heavy industry and transport projects.
Contractors | Nov 1, 2023
Nonresidential construction spending increases for the 16th straight month, in September 2023
National nonresidential construction spending increased 0.3% in September, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $1.1 trillion.
Sponsored | MFPRO+ Course | Oct 30, 2023
For the Multifamily Sector, Product Innovations Boost Design and Construction Success
This course covers emerging trends in exterior design and products/systems selection in the low- and mid-rise market-rate and luxury multifamily rental market. Topics include facade design, cladding material trends, fenestration trends/innovations, indoor/outdoor connection, and rooftop spaces.
Giants 400 | Oct 30, 2023
Top 170 K-12 School Architecture Firms for 2023
PBK Architects, Huckabee, DLR Group, VLK Architects, and Stantec top BD+C's ranking of the nation's largest K-12 school building architecture and architecture/engineering (AE) firms for 2023, as reported in Building Design+Construction's 2023 Giants 400 Report.
Giants 400 | Oct 30, 2023
Top 100 K-12 School Construction Firms for 2023
CORE Construction, Gilbane, Balfour Beatty, Skanska USA, and Adolfson & Peterson top BD+C's ranking of the nation's largest K-12 school building contractors and construction management (CM) firms for 2023, as reported in Building Design+Construction's 2023 Giants 400 Report.